Just
Death, and when it will come calling, is one of those taboo subjects that is enough to send many of us coughing squeamishly into a corner or reaching for a glass of our favourite single malt to make it all go away.
The reaper comes to all of us, though, and how long we live in our retirement, how to get the best income in our old age — not to mention what to do with granny or grandpa if they can no longer care for themselves — can be a complex and expensive business.
In the corporate world, it can also represent a large financial headache if your business is labouring under the weight of an expensive defined benefit pension scheme and the trustees are fretting that the fund can no longer afford to honour all of its retirement obligations in full.
Just Group is one of those companies that is rather good at all this. It was created in its current form almost a year ago on completion of the merger between Just Retirement and Partnership Assurance, both specialist providers of pensions for those smokers and drinkers or sufferers of illnesses who are likely to live a shorter life than most when they stop work.
Both of them boasted what they claimed as unparalleled databases full of detail about the lifestyles, health patterns and (cough) “longevity” patterns of retirees and argued that they could offer better-priced annuity retirement products as a result.
George Osborne’s overhaul of pensions when he was chancellor changed the world for these players, although they argued that their merger was not defensive but was about how to grow in their specialist areas and how to develop into new markets. The result is a group that now sells retirement policies to the fighting fit as well as those who smoke 40 a day. It offers to take on the risks of pensioners’ longer lifespans and fluctuating interest rates that retirement schemes can no longer afford; and it offers financial plans for those whose relatives have had to move into care homes, among other insurance and pension policies.
Just Group published a set of financial results yesterday that provided an insight into how it has fared since the merger. It’s pretty impressive stuff. Prioritising value over volume led to a 37 per cent increase in new business operating profit to £169.8 million, against a pro forma figure of £123.9 million that helpfully sets out how the two businesses would have performed if combined a year ago, before cost savings and other synergies are factored in.
That increase is far ahead of the 5 per cent increase in total retirement sales to £1.94 billion and shows how Just Group is making higher margins work for it.
Analysts were pretty much in agreement that the figures were better than they expected and, taken with a 6 per cent increase in the final dividend to 2.55p, it’s of little surprise that the shares were up 1¾p to 136¾p, a rise on the day of 1.3 per cent.
Just Group believes that there is plenty of growth to come. Pensions experts at Hymans Robertson reckon that £700 billion of pensions risks will be insured by companies such as Just Group by 2031, which is a market worth £45 billion a year.
Savers are being more strongly encouraged to shop around when they buy an annuity, rather than crystallise their savings with their existing company. Just Group is a market leader in winning business in this “open market” for annuities, and thinks the percentage of customers shifting to another annuity provider when they retire could grow from 48 per cent to as much as 80 per cent. It can pay for some of that growth using the proceeds of a £230 million bond issue completed last month. Just Group is worth exploring further.
ADVICE Buy
WHY Well-funded, diversified player in retirement market with plenty of scope to grow
ONESAVINGS BANK
Once upon a time a large German investment bank set itself a return on equity target of 25 per cent. In the service of hitting this insane figure, which meant earnings would nearly double every three years, assuming that shareholders’ equity remained unchanged, the business pulled all sorts of tricks that it is still paying for. Yesterday, Onesavings Bank reported an ROE of 28 per cent for 2017. This was slightly down on the 29 per cent it achieved a year earlier, but highlights quite how fast the former building society is growing.
Now, there is a world of difference between investment banking and the business that Onesavings pursues, which is old-fashioned retail banking. However, the point remains that some of the growth being recorded among the so-called challenger lenders taking on the big high street banks is pretty stunning.
Less than a decade ago Onesavings was known as the Kent Reliance, a building society with a handful of branches and no nationwide brand to speak of. Today the business is involved in a range of speciality lending markets but it is the growth of buy-to-let and small business lending that have turbocharged its performance.
While residential mortgage volumes, once the mainstay of its business, have remained pretty much static at a little over £1 billion, buy-to-let and SME lending has rocketed from a fraction of the home lending figure to several multiples of it.
Last year buy-to-let lending grew by 39 per cent to £5 billion against a backdrop of a market shrinking under tighter regulation and unhelpful tax changes. This might look unpromising, but for Onesavings, which deals mostly with professional investors, it has proved an opportunity rather than a curse as the amateur players have withdrawn.
For all this growth, Onesavings still trades at about two times its book value, lower than rivals such as Metro Bank, meaning its valuation remains relatively unchallenging against its peer group.
Looking further out, Onesavings is guiding towards a falling net interest margin, a key measure of a bank’s profitability, with deposit funding costs on the rise and cheap government money falling away.
ADVICE Buy
WHY Undemanding valuation and growth still looks good
